President of Argentina, Cristina Fernandez de Kirchner, wants people who hide $160 billion in foreign accounts to support the country’s ambitions in the field of oil exploitation. The offer? They either buy bonds, or go to prison.
Argentina’s tax authority found an original method to determine tax evaders to unearth the money moved elsewhere: either they give the money from tax evasion to the government and buy bonds of the state-owned company YPF SA, which will pay an interest rate of 4% or go to prison. The interest paid to lend money to the oil company is well below the 13.85 percent yield on Argentine debt.
The high interest that Argentina has to pay to borrow money provides few opportunities to Cristina Fernandez to put in place a plan to exploit the huge reserves of oil shale in Argentina. After it forcibly nationalized last year YPF, previously owned by the Spanish company Repsol, Argentina is looking for investments in energy resources and needs $37 billion over the next five years. The plan to use reserves of $2 billion from the central bank did not help the national currency, as the peso began to depreciate rapidly, and quotations on the black market reached 10 pesos to the dollar, compared to the official exchange rate of 5.24 peso/dollar.
Authorities estimate that tax evaders hid assets of $160 billion, equivalent to 36% of the country’s gross domestic product, including assets of $40 billion in the country. In order to attract money to the budget, the IRS has announced a three-month amnesty period for those who want to voluntarily declare the income; otherwise, they are threatened with criminal penalties.
But Argentine citizens might have lost confidence in the country after 2002 when depositors lost huge amounts of money after bank deposits in dollars were forcibly converted to pesos at a disadvantageous exchange rate. Also, they may be discouraged to declare their income due to a 35% income tax and a tax on personal wealth of 1.25% of assets held.
Those who would declare black money will be exempt from paying taxes on these amounts accumulated in the past. The finance ministry said that the last tax amnesty program brought to light $4 billion in 2008. According to a member of the current coalition government, the state expects to raise at least $5 billion in the current program.
Analysts polled by Blomberg are skeptical about this program, especially in what concerns the Argentine citizens who sent their money out of the country, given the lack of confidence in the Buenos Aires government.